The Supreme Court has issued a ruling that cuts what municipalities can claim from neighbors for capital gains tax.

After the Constitutional Court rejects that more than what is actually earned could be demanded, the Supreme Court rejects that all or almost all of the benefit obtained can be collected.

Doing so would be "confiscatory" and, therefore, unconstitutional.

The Supreme Court resolves the case of a company that sold a piece of land for 17,473 euros more than what it had bought.

In accordance with the tax regulations, which do not take into account the real profit, the city council of the capital determined a capital gain of 76,847 euros, which resulted from applying the cadastral value at the time of the sale and the years that have elapsed since the purchase.

Applying the Constitutional ruling, the amount due for the tax would have had to be lowered to the real increase, that is, to just over 17,000 euros.

But the Supreme considers that this is not acceptable either.

"A situation such as the one described is also contrary to the principles of economic capacity and the prohibition of confiscatory nature provided for in article 31.1 of the Constitution," say the magistrates, who consider that "a result of this nature should also be considered hardly respectful with the demands of tax justice referred to in the constitutional provision itself ".

"The specific application of a tax that supposes that the taxpayer has to allocate to its payment all or most of the real or potential wealth that such tax reveals will have a confiscatory nature to the extent that it clearly represents a burden excessive, exaggerated and, of course, not proportional to that economic capacity that, ultimately,

it justifies the very existence of the corresponding tax figure ", says the Administrative Litigation Chamber.

"It is, therefore, contrary to the Law - because it implies a clear confiscatory scope - a liquidation of the Tax on the Increase in the Value of Urban Land that, applying the corresponding articles of the Local Finance Law, establishes a tax quota that coincides with the increase in value revealed as a consequence of the transfer of the land, that is, that it absorbs all of the taxable wealth ".

The Supreme Court regrets that, although time has passed since the Constitutional Court annulled part of the tax regulation, the legislator has not yet corrected the rule.

In any case, it specifies that it is not for the Supreme Court to replace the Chambers, so it cannot determine what percentage of the profit falls within the confiscatory limits.

The appeal gives part of reason to the company, but in part also to the city council.

As in a previous resolution, the Supreme Court rejects the thesis of the Superior Court of Madrid that the tax should be considered null and that the municipalities cannot claim it.

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